Due Diligence for Schools Joining a Multi Academy Trust

The Department for Education has signalled clearly that the future development of academies lies in the consolidation of more schools into multi-academy trusts (MATs). Primary schools, in particular, will be encouraged to join existing clusters and groups of schools. In future, we may see schools deciding to leave one MAT and join another, where the grass is greener – a bit like footballers at transfer season! The decision of a single school to join a MAT family of schools requires careful thought on both sides. For the new joiner school, (which could be a community school, a church school or a standalone converter academy), the headteacher and governors will need to be satisfied that the match is a good one, the cultures are aligned and that operating at scale will bring the expected benefits for pupils. Equally, the board of the MAT will need to be satisfied that the school they are ‘acquiring’ or partnering with will fit well with the aims and ethos of the group, will not create unmanageable risks or liabilities for the future, nor de-stabilise the group as a whole. Both partners in the relationship need to undertake some detective work and analysis before signing on the dotted line. The technical term for this exercise is ‘due diligence’.

In our work with academy converters and MATs, we often find due diligence is often not given the priority and resources it deserves. In the wider corporate sector, research has found that 70% of mergers and acquisitions fail to deliver the expected benefits (IoD, 2012). The reasons most often cited for failure are (1) misguided strategy in pursuing the merger (e.g. ‘empire building’ or hubris) (2) overly optimistic expectations and (3) failure to manage the integration process properly. It is important that leaders of both parties spend quality time on this aspect to discharge their duty to promote their organisation’s best interests and enhance the chances of success.

Purpose of due diligence

Due diligence is the process by which the parties gather information about each other to ensure the integration process proceeds smoothly. In particular, it is used to identify risks, liabilities, cultural differences and practical issues that may cause difficulties later. The key objectives are:

  • To test the strategic rationale for the tie-up: will it improve the life chances and attainment of pupils and is it really financially and operationally attractive for both sides? What are the prospects for the future? Do the partners have the capacity and capabilities to pull it off?
  • To inform negotiations, identify liabilities and make sure the legal documents pick up risks and allocate them appropriately by using warranties and indemnities (legal clauses which require one party to compensate the other if a risk materialises and costs are thereby incurred). The general rule is that liabilities whose origin is pre-transfer belong to the transferor (local authority and/or diocesan trustees), and those whose origin is post transfer belong to the transferee (the MAT).
  • To lay the foundations of the future integrated organisation and build its culture. The process should combine an ‘outside in’ approach with an ‘inside out’ approach to understand the schools’ relative position in the local education system, as well as understanding the internal capabilities, strengths and weaknesses.
  • To examine broader issues of culture, systems and processes, management structures, future opportunities and business plans.

Is there a framework for due diligence?

In our work with academies, we are often asked about the best way to approach due diligence when a new school is joining a MAT. Effective due diligence needs to look at a range of factors to form a complete picture. It is not just about examining the accounts of the organisation, reading the last OFSTED report or even reviewing the staff list. Ideally, it requires a project team of people with different perspectives to pick up both hard and soft issues, the nuances vital to successful integration. Much of the information will come from interviews with open ended questions. As a mentor of mine once said: “Ask the question. Shut up. Listen”. Using two interviewers, one to listen and the other to observe body language can be useful. This is our suggested roadmap for success.

Strategy

Start with ‘Why?’ For the new joiner, what is in it for you by joining a larger group? Have you clearly articulated the list of benefits you expect to get out of the ‘merger’ and communicated these explicitly to your prospective partners (for example, more funding and resources, enhanced resilience, better support services, staff training, enhanced career opportunities)? Are they documented somewhere so you can monitor progress and hold your partner to account later? For the acquiring MAT, is it part of your strategy to grow by acquiring new schools? Do you genuinely have the capacity, resources and support systems to absorb and nurture the staff team, pupils, buildings, contracts and liabilities you will be taking on?

What does this particular school bring to the party, as compared to others you could work with? Benefits for the MAT might include, securing your future enrolments, access to more funding, spreading overheads to achieve economies of scale, better preparation of pupils for secondary school life, enhanced opportunities for income generation. Have you clearly communicated to the new joiner the ethos, culture and behaviours expected of those joining your MAT? Have they explicitly accepted them?

Performance

Both parties need to understand where the other currently stands at the moment in performance terms.

Key questions to consider might be:

  • What is the scope of educational activities? How has the organisation developed and what is the rate of expansion?
  • Is there a documented vision, mission, values, strategy and objectives? How are they performing against these at present?
  • What are the achievement levels of pupils – gain an overview of attendance, attainment and the progress of pupils within the schools
  • How is the learning rated for pupils with SEN, disabled, BME groups and looked after children?
  • How is the quality of teaching rated?
  • How is attainment and progress measured and rated?
  • Quality assurance – how well does the MAT know the performance and the strengths and weakness of its academies?
  • What are the procedures for challenging individual schools and identifying the support they need;
  • How coherent and adequate is the model for providing school improvement support – whether through MAT specialist staff, external consultants, academies in the group, other schools or a mix of these approaches?
  • What do the latest OFSTED reports say and are the areas identified for improvement and action being addressed?
  • For the MAT, what are the critical success factors and KPIs that you will use to measure performance of schools joining the group? Are these explicitly clear, (e.g. ‘all our schools are expected to be rated good or outstanding by OFSTED within 2 years of joining the MAT’)

Leadership & Governance

Leadership and governance will be critical to future success. How would you rate the quality of the MAT Board? Is there a good mix of skills and experience? Do trustees actively challenge and question the management team or do they rubber stamp decisions? Can you see the minutes of the MAT Board meetings and committees? Have any performance evaluations been carried out for the Board and can you see them?

What do the last two OFSTED reports say about leadership, management and quality of governance? What governance issues is the Board struggling with at present?

How will governance be organised after the transfer? What roles will the governors of the new joiner play after the transfer? Will any of them be invited to join the MAT board or will they function as a Local Governing Body with some delegated powers?

Review the proposed Scheme of Delegation – what functions will actually be devolved to the local governing body and which will be retained by the MAT? In what circumstances could the delegation be suspended?

Are role descriptions of the SMT, governors and key staff clearly documented so it is clear who is responsible for what?

Does the MAT have a full suite of up to date policies and procedures in place and how do they work in practice?

Can you be confident that the organisation has applied the highest standards of propriety and internal control to avoid reputational damage? Do they manage board members’ and the management team’s conflicts of interest properly and avoid ‘related-party transactions’ (e.g. awarding contracts to a relative’s business)? Consider reviewing the register of business interests and board minutes to check this. Are you satisfied that the organisation is transparent in all its dealings?

Next time – In Part 2 of this post, we will examine the workforce issues and financial aspects of due diligence.

Find out more about our Due Diligence Service here.

Mark Johnson is a highly experienced independent solicitor & chartered company secretary helping schools and academies with conversions, creation of MATs, legal and governance issues. We can help your academy to flourish. Find out more at elderflowerlegal.co.uk.

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